The Federal Reserve's Covert Bailout of Europe

When is a loan between central banks not a loan? When it is a dollars-for-euros currency swap.

By

Gerald P. O'Driscoll Jr.

December 28, 2011

America's central bank, the Federal Reserve, is engaged in a bailout of European banks. Surprisingly, its operation is largely unnoticed here.

The Fed is using what is termed a "temporary U.S. dollar liquidity swap arrangement" with the European Central Bank (ECB). There are similar arrangements with the central banks of Canada, England, Switzerland and Japan. Simply put, the Fed trades or "swaps" dollars for euros. The Fed is compensated by payment of an interest rate (currently 50 basis points, or one-half...